Student Borrowers Get a Break

John Hechinger

$77.4b student loans in default as of Sept. 2012

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The Obama administration is cutting the fees it pays private debt collectors hired to get defaulted student loans back on track. Previously, the collection companies could earn a commission of up to 16 percent of the loan amount, but only if they secured stiff monthly payments worth 0.75 to 1.25 percent of the loan. The arrangement gave them an incentive to push borrowers into payment plans they couldn’t afford. Under the terms of a new contract with the government that took effect in March, collectors can take a cut of about 11 percent, even if borrowers make low payments tied to their incomes. “It will make life easier,” says Persis Yu, a staff attorney with the National Consumer Law Center. “We’re not setting people up to fail.”

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